Should I Buy a New Car or a Used Car?

Used Vs. New Car Expenses

This is a guest post from Joanne Kwan, who provides sound advice for those facing the used versus new car decision for the first time.

When it comes to buying a car, there are two options: new and used, and as a young professional, for whom this may be the first automobile purchase not funded by the Bank of Mom and Dad, there are valid reasons to consider each. Used cars are less expensive to buy, and are often less expensive to insure as well, while new cars often have a much broader array of safety and anti-theft devices. There are a number of excellent websites at your disposal to help you locate used car deals, new car rebates, and more information than you probably thought possible about mileage, performance, engine specs, and prices.

Questions to Ask Before you Purchase a Car

Even with the abundance of information at your disposal, there are three basic questions you need to answer, before you begin to shop:

1. What is the reason for the purchase? Are you buying a new car because you need to replace a vehicle that isn’t working correctly, or are you upgrading your car to reflect a recent promotion or other change in status?

2. How much can you afford? Even with rebates, new cars are significantly more expensive than used cars, and if you go to a dealer even previously-owned vehicles can be financed. Do you have a down payment? How much of a monthly payment can you make?

3. How will you use this car? If you’re the type who drives between home, work, and the grocery store, and maybe goes to dinner with friends, or on a date with your significant other from time to time, you might be fine in a vehicle that’s a little older. On the other hand, if you’re in a sales position, and have to travel for work, or like to take off on long weekend road trips, a new car may be the wisest choice for you.

Generally speaking, if you have enough money to make a decent down payment without dipping into your investments, and can make a monthly payment for three or four years without stretching your budget too badly, and have good-to-excellent credit, a new car is within your reach. If any of these things pose a problem, you may want to consider getting a used vehicle, off of Craigslist, for example.

Advantages of Buying New Cars:

The advantages of new cars include:

Most up-to-date safety and anti-theft devices

Less likely to require maintenance

Better performance

Vehicle will be under warranty

Before going to a dealer to shop for new cars, you should find a lender and set up financing. While you can use dealer-provided financing, you are not required to do so, and may get a better APR (annual percentage rate) by arranging your own. If you are a member of a credit union, you probably have access to excellent auto loan opportunities.

As well, you should hit the Internet and do some research on the specific makes and models you’re considering. Compare safety features and fuel economy, check suggested prices, and determine which optional accessories you need and which you merely want, or can live without. By doing this, you’ll be negotiating from a more equal position, and will be able to get the lowest price possible.

Advantages of Buying Used Cars

Used cars are not without their advantages, either. Among them are:

Less expensive to buy

Insurance tends to cost less.

Unless the vehicle is rare or otherwise unique, they’re less likely to be stolen

Questions to Ask yourself when Purchasing a Used Car

Purchasing a used car takes a bit more education than buying a new car. Whether you’re going through a dealer for one of their “previously owned” vehicles, or buying direct from an individual, you should consider the following:

What is the car’s condition? Are the parts original, or have they been replaced? How old are the parts? Has the vehicle been well-maintained?

How old is the car? If it’s more than six years old, or the mileage seems either too high or too low relative to the age of the car, be very wary.

How’s the paint job? Does the paint feel smooth and sleek, or does it seem to be hiding dents or rust. Does it feel patchy? Perhaps there was body damage.

Is the original paperwork, including the owner’s manual, available?

If all of these questions have been answered to your satisfaction, you’ll want to obtain a vehicle history report from a service such as CarFax (most used-car dealers will provide this. Insist upon it if they don’t), to make sure the car was never reported stolen or involved in an accident that caused significant damage. It’s also a good idea to find out what similar cars are selling for, to make sure the price you pay is fair.

If your used car is coming from a dealer, be sure to ask about any warranties or guarantees. Most certified pre-owned vehicles come with some sort of protection plan.

Getting the Best Deal on Car Insurance

Whether you ultimately choose to purchase a new or used vehicle, be certain to arrange for your car insurance quote at the same time you arrange financing. Be prepared for the fact that a financed car will generally have to be covered with comprehensive and collision policies as well as your state’s required liability and uninsured motorist coverage.

If you own a house or are self employed, you’ll want to make sure your auto insurance coverage is more than the minimums, so that you can protect your home or business if you are sued because of involvement in an accident, and never, EVER, let your insurance lapse.

A new car, whether it’s fresh from the dealer’s lot, or merely new-to-you is always exciting. By using the tools available on the ‘net, and knowing what to ask about when you shop, your new car experience will be a pleasant one.

12 Comments

I’m not a car person myself, so I would probably opt for a used car, at least in the beginning. Either direction you choose, you should never go to a dealer when you have to buy a car, but rather it’s something you may want. Otherwise they will lock you in and take advantage of your situation. With the internet, there are a lot of sites to do research. I think that is key before purchasing any type of car. Also depends on the person. Leasing it a viable option to get a new car but not have to have it for lifetime. A lot of people who could afford a new car opt for this option because it allows them to change and upgrade every few years. For a younger person who is looking more long terms and bang for their buck, I think a used car is best.

There are so many factors that will vary in this decision. Some things that haven’t been mentioned:
1)New cars depreciate very quickly in a short period after you drive it off the lot. If you’re upgrading your car every year or two, a used car with low kilometers will depreciate slower than a brand new car.
2)New cars do have warranty that cover certain problems. However, if the car you are buying is the very first model that manufacturer has produced (take the Toyota FJ Cruiser for example that came out in ’07) there are often many issues in the first year of production of a new model of vehicle that are fixed in later production years. Often you won’t know about these problems as no one has owned the new model long enough to experience and report the problems.
3)It’s easier to research the reliability of used cars as more time has passed for problems to occur and to be reported.
4)Some dealerships still offer 0% financing and 0% down on new vehicles. If you can save your downpayment and invest it instead of putting it toward the vehicle, you’re technically better off in the long term since you’re not paying interest. Even if you had the cash to pay for a new vehicle but could take 0% down financing; you would be crazy not to invest the $30K (or whatever you would spend on the car) and make monthly principle payments. A dollar today is worth more than a dollar tomorrow; basic finance.

@ Craig – you make a lot of good points. I think one of the biggest factors one has to ask themselves is “how long do I want to keep this car?”. There are advantages to buying new if you’re the kind of person that keeps great care of their car and holds onto it for 10 or so years. Others feel like they must have something fresh every few years and would probably be better off leasing.

@ CJ – Your point about reliability of used cars due to being time tested is a good one that is not often mentioned. Thanks for the great comment.

“…if you’re in a sales position, and have to travel for work, or like to take off on long weekend road trips, a new car may be the wisest choice for you.”

No, no and thrice no. If you are a road warrior you will destroy the value of whatever you drive. Therefore a new vehicle is the worst buy, unless your employer is paying for the vehicle. What you want is a good used vehicle that will do the job – not a fancy $40k vehicle that will be worth $12k after the first year.

The writer seems to be heavily biased towards new cars; I have purchased a new car once, and will probably not do so again.

We have two vehicles; a 1993 Saturn (His) and a 2000 Camry (Her’s). Yesterday we took the latter for a 250-mile round trip with nary a hiccup; that’s reliable enough for me.

Ironically most people who have no money end up buying a new car, due to the plethora of “Creative Financing” (that’s code for “too broke to buy a car”) options available. The writer also completely misses the opportunity cost of a car payment.

Curiously, Ford and GM’s finance divisions make more money than their car manufacturing divisions do.

Bottom line: Unless you have a million in the bank, don’t bother with a new car.

There seems to be an assumption that buying a used car means getting a crappy 8-10+ yr old maintenance headache.

I bought an awesome 4 yr old sports car (fully loaded Mazda RX-8) for <$15K (it was about $40,000 brand new) from a private party. The seller had babied it so much that everybody thought I got it brand new, and I haven’t had any mechanical problems with it.

A brand new car loses 20-30% of their value once the first owner drives it home. I don’t think the new car smell is worth that much money.

Depreciation should always be factored into the equation. Consumers planning to keep a car for fewer than five years will likely get a better value buying a used car from a recent model year, which already has that initial depreciation built into the price. But if you plan on hanging onto the car for at least five years, itâ€™s alright to go for that temptingly priced new car. The price of a car thatâ€™s more than five model years old is largely determined by its condition, rather than the initial selling price.

Definitely used. If you want “new” and don’t want to pay for NEW, look for a used car just coming off a lease. They’re generally well taken care of with low miles. My 2005 Honda Accord looked like a brand new car when I drove it off the lot, but I certainly paid less than brand new. And, I plan on driving it ’til it dies. (Which, considering my last Accord ran past 250,000 miles, should be quite a few years from now.)

If you simply have to have a new car or the latest model (and plan on trading in for the newest model in a few years), then leasing is the better option, even with the limited mileage to consider. (Plus, it creates all these lovely opportunities for those of us who want a nice used car to get yours when you’re through with it!)

“I think buying Used cars is a bit like buying an old computer.
The old is outdated but will still do the job. Just not as good.” well that could not be further from the truth…just look around the way, you can find reliable deals everywhere.

I drive Volvos, but cannot afford a new one, so have always bought used older Volvos. Frankly, I am part of a fairly large group of Volvo lovers who shun the newer ones in favor of the old boxy ones. Plus, I can get a real station wagon if I buy an older Volvo. My latest one is a 1996 wagon that has 165,000 miles. One trick is to look for cars like Volvos and Lexus that have good warranties and that were upscale luxury cars at the time they were new. Lots of owners keep all the service records because the cars like this have a reputation for longevity. I’m glad to see Edmunds take the time to debunk the thought that you can only get a reliable car as a new purchase.

Sure it looks like the dealer paid it, but every dealer gets in back in their monthly advertising allowance on each neww
vehicle they have in stock. Here are the results from all three of
these auto websites:. Now you can select the best model with great price in front of your computer without
any hassle.

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